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2 Economic Development,Globalization and Urban Governance in India
DINESH MEHTA B PUSHPA PATHAK
Contents
I IN T RO D U C T IO N 5 5
II E C O N O M IC DEVELOPM ENT A N D U RBAN IZAT ION 5 7
Indian Urbanization and Economic Development
Urbanization and Level of Development
Locational and Sectoral Shifts
Imbalanced Growth
Inequities due to Urban Growth
Public Policies and Urbanization
IV E C O N O M IC POLICIES A N D GLO BA LIZA T IO N 6 3
iMacro-economic Policy in India
Global Economy and Foreign Investment in India
IV URBAN IMPACTS O F M ACRO-ECON OM IC PO LICY AND
GLOBALIZAT ION 6 5
V CITY E C O N O M Y A N D G LOBALIZAT ION 6 8
New Production Process
Emergence of Financial Industry and Innovation
Real Estate Market and Globalization
VI NEVC M O D E O F URBAN GOV ERN A N CE FO R E C O N O M IC
DEVELOPM ENT 7 3
Decentralizaation as a Mode of Governance
System of Governance and Economic Development in Cities
Industrial Development
Business Enterprises
Land and Property Development
Towards a New Mode of governanceRole of the National Government
Urban Local Governance
Partnership among Stakeholders
VII CONCLUSION 8 3
2 Economic Development, Globalization and Urban Governance in India
DINESH MEHTA \A PUSHPA PATHAK
I INTRODUCTION
There is a growing concern about the role of cities in the global economy.
It is clear that cities are now recognized as the prime foci of the global
economy, and urban development issues are seen as an integral part of
the global market trends. It is unfortunate that this broader vision of the
role of cities is not reflected in the macro-economic and urban policies in
India. Despite the empirical evidence that urbanization is a distinctive
feature of the national development process and that cities have always
played a dominant role in the economic, cultural and political spheres,
their role as the ‘anvils of civilization’ and as ‘engines of growth’ is not
accepted in national policy dialogues. Urban issues have never been at
the forefront of the national policy agenda in India. The policy makers
and the popular media are overwhelmed by the problems that cities face
and concentrate only on the demographic aspects of urbanization. The
facts related to the positive overall contribution, and the opportunities
that cities offer, are relegated to the background. The policy
prescriptions that emerge from such a restrictive view of the
urbanization process perceive cities as problematic, and propose
containment of the growth of larger cities. Correspondingly, urban
issues have received little attention in the national economic policy
debate. The discussions and review of progress under the new
economic policies in India have also tended to ignore the important
urban dimension in the quest for India’s globalization.
Consequently, urban governance in India is extremely weak. The
roles and responsibilities of urban local governments have been gradually
eroded and they exercise very little influence on local economic
development. The city governments and other agencies that are
supposed to provide basic services in the cities, are now alienated
from the civil society and are perceived as unresponsive, irresponsible,
inefficient and corrupt organizations. Such antipathy of the civil
society, compounded by genuine limitations of the capacities of the
56 THE C H A L L E N G E OF URBAN G O V E R N A N C E
local governments to promote economic development, suggest that it
is indeed a tall order to make the system of urban governance responsive
to the forces of globalization.
The gradual transformation of the predominantly rural society to
an urban one has been set in motion in India. There are significant
structural shifts in the economy, with decline in share of primary sector
output and employment. The urban centres already contribute over
half of the national income. The liberalized market-based economic
policies being pursued for the last three years are likely further to
accelerate the process of urbanization and sustain the dominant role of
cities in the national economy. The experience of the East-Asian and
the Pacific region cities suggests that Indian cities will have to become
aggressive players in the international market and compete with other
global cities in the Asia-Pacific region. This can happen only when city
governance becomes sensitive to the issues of economic development.
What is governance ? More importantly, what is good governance?
Governance may broadly be defined as ‘the ways in which a scxiety organizes
itself to make and implement policies' (Summers and Pritchett, 1993). The
economic policy and performance of a nation and a city are largely
dependent on the system of governance. Governance is also much more
than what the gov ernments do. The system of governance is ‘good’, when
all the stakeholders—the government, bureaucracy, business enterprises
and the civil society at large— collaborate on certain economic and social
goals. The challenges lie in creating instrumentalities that provide
opportunities to the diverse groups of stakeholders to come to terms with
such goals and participate in the system of governance. The challenges of
good governance lie not only within the domain of economic performance,
but also in the sphere of transforming the very mode of governance itself.
This new mode of governance has to promote economic development, as
well as safeguard the interests of all its stakeholders against the likely adverse
impacts of the envisaged rapid economic growth.
The market-based approach confronts the old economic and political
order. The trajectory to reach the goals of economic prosperity is beset
with problems that will shake the basic foundations of the old order.
Unlike in the past, when the state assumed total responsibility towards
the civic society, the new order requires the state to be an enabler
rather than a provider. Will the Indian cities meet the challenges
of eradicating the infrastructural deficiencies and remove other
bottlenecks that hamper the productivity of cities ? Can they
EC O N O M IC DEVELOPM EN T 57
become 'global cities' ? What system of governance will promote
these global cities? What are the requisite managerial, technical and
financial capacities of the state to perform this new role ? How will the
state achieve a smooth transformation from the old system of governance
to a new one? What will be the roles of the bureaucracy, business and
civil society, in this mode of governance ?
In the prevailing circumstances, where reform measures in India are
largely confined to the national level, the responses to the range of
questions related to governance and economic development are at best
probabilistic, and often speculative. In the absence of any major local
initiatives in India, it is necessary to draw heavily upon the European,
North-American and East-Asian experiences to speculate about the future
of Indian cities in a globalizing economy. The new mode of governance
required for promoting city-level economic development is, likewise,
based on the international experiences and on a few initiatives that are
still in a formative stage in India.
II KCONOMIC Di \ I I I Jl’M I.M AND URBANIZATION
The economic framework of urban growth is quite simple. The higher
productivity of urban centres is due to the scale economies,
agglomeration economies, and access to markets. Higher productivity
in a competitive market also implies higher wages. Higher w'ages
and value additions in urban areas induce demand for land and
housing and other services. The land and housing prices, and other
costs of services in larger cities are typically higher, and the higher
wrages in bigger cities are offset by the overall cost of living.
In a simple equilibrium model, the size of cities is related to
economic efficiency. Cities with large productivity advantages
expand rapidly and also command high wages and have a high
cost of living. The city-size distribution is thus reflective of the
relative economic efficiencies of cities and the smooth functioning
of the market. (Kelly and W illiamson 1994). The productivity and
profitability of a firm is largely dependent on the technology
(capital investments), managerial ability and the competitive
advantages in the market. Similarly, wages are determined largely
on the embodied human capital, rather than on the sector of
employment.
58 THE C H A L L E N G E OF U RBA N G O V E R N A N C E
Indian Urbanization and Economic Development
There is little scope for debate regarding a strong relationship between
economic development and urbanization. This has been observed both
in the developed as well as in developing countries. Analysis of this
relationship using empirical evidence from a large number of developed
and developing countries, has drawn ample scholarly attention in the
recent past. (Harris 1992; Peterson, et al. 1991). The main aim of these
studies has been to arrive at some generalizations concerning the nature
of association between economic development and urbanization.
Although it may seem repetitive, a few of these generalizations need to
be noted here in order to place the analysis of Indian urbanization and
city growth in a broader context.
Urbanization and Level o f Development
The first generalization is that, while the developed countries have higher
levels of urbanization than the developing ones, the relationship between
economic development and urbanization is not perfectly linear. The
stage of national development, to some extent, determines the strength
of this relationship. It is observed that accelerated economic growth at
lower levels of development leads to a faster pace of urbanization. At
higher levels of development, the rates of growth of urban population
are low. The relationship between levels of economic development
and growth of urban population is thus shaped like an inverse-U
(Mills and Becker 1986).
Given the present level of urbanization, India is still predominantly
a rural-agricultural country' with three-quarters of its population living in
rural areas and two-thirds of its workforce engaged in agriculture and
allied activities. However, increasing levels of urbanization is accompanied
by significant shifts in the structure of the economy. The share of the
primary sector is declining while the share of the secondary and tertiary
sectors is increasing, both in terms of employment and total output, and
their contribution to the national income. The share of the urban sector
in the national income has been disproportionately higher than the
population share. Urban areas contributed nearly 29 per cent of GDP in
1951. This share was 43 per cent in 1981 and was estimated to be
around 47 per cent in 1991- The urban/rural per capita GDP ratio
has correspondingly increased from 1.96 in 1951 to 2.16 in 1991
(Mehta 1993). The share of the manufacturing sector in terms of
EC O N O M IC DEVELOPM EN T 59
total urban employment has recorded consistently increasing levels
between 1961 and 1981; this has decreased by about 5 per cent during
1981-91- A relatively larger proportion of the urban work force is
now employed in the service sector.
The imbalance in the pattern of economic development and
urbanization in India manifests itself both at the regional level as
well as in relation to the high concentration of urban population and
activities in a few large cities. Wide-ranging variations in the level of
urbanization and urban growth rate bear some semblance to the cross
national patterns of economic development and trends in urbanization.
The more developed and industrialized states have higher levels of
urbanization and are now experiencing relatively slower urban growth
rate, while less developed, industrialized states are rapidly urbanizing.
The distribution of urban population of 217 million residing in 3768
urban centres is uneven across regions and city-size. In 1991, the 23
metropolitan cities accounted for 33 per cent of the total urban
population while 64 per cent of the urban population of the country
resides in the 273 cities above 100,000 population. It is quite likely
that these 300 urban centres contribute over 80 per cent of income
originating in urban areas. Such high levels of concentration of urban
population and economic activities can be explained to some extent
by the linkages of these cities to the external world markets.
Locational and Sectoral Shifts
A second pattern observed is that the twin processes of economic
development and urbanization are associated with locational as well as
sectoral shifts of labour. The income elasticity of demand for manufactured
goods being greater than that for food and other agricultural products,
this sector has a higher potential for economic expansion and labour
absorption (Mills and Becker 1986; Oberai 1993). Thus, urbanization
generally entails shift of labour from lower income predominantly
agricultural activities, to higher income industrial and service sectors.
Such locational and sectoral shifts of labour imply a higher average
income level which helps in attaining a faster pace of overall economic
growth at the national and regional levels.
The decline in manufacturing employment and increase in service
sector employment are particularly pronounced in the metropolitan and
large cities. A strong association between Indian urbanization and
industrialization has been observed. Nearly 74 per cent of all the
60 THE C H A L L E N G E OF U RBAN G O V E R N A N C E
registered factories are located in urban areas which produce about 79
per cent of the net value added of the factory sector manufacturing units
(Government of India 1988-89).
Imbalanced Growth
A third pattern suggests that unbalanced growth is implicit in economic
development and that the growth patterns are determined by terms of
unequal exchange between regions/sectors as well as by the comparative
advantage enjoyed by certain regions. Such an advantage could be
physical, locational, economic or historical or a combination of these
(Harris 1988).
In the pre-colonial period, the major urban centres of India were
along the trade-routes. The prosperity of urban settlements in this era
was linked to the global market, and many settlements decayed as the
trade routes were changed. Such linkages to the global economy persisted
in the colonial period as well.
Urban growth in the colonial period was characterized by the
emergence of what is known as 'gateway’ cities which were generally
port cities conducive to trade of commodities and manufactured goods
between the colony and the imperialist country (Kidwai 1993). Calcutta,
Bombay and Madras are prime examples of such gateway cities that
emerged and prospered during this period. In the post-independence
period, these cities continued to experience higher levels of concentration
of urban population.
However, high concentration of urban population and economic
activities in large cities are also attributed to economies of scale,
lower transportation cost and agglomeration economies. In the case
of relatively less developed countries, both the number and size of
urban centres increase with accelerated economic development and
urbanization.
In this process, the contribution of the primate cities or the larger
urban centres in the national economies is significant. For example,
Sao Paulo contributes 36 per cent of Brazil's Net Domestic Product;
Federal District in Mexico, 34 per cent; Lima in Peru, 43 per cent;
Bangkok in Thailand. 37 per cent; and Nairobi in Kenya, 20 per cent
(Kanhert 1987). Inefficiencies and infrastructural bottlenecks in these
cities adversely affect the national economic output.
EC O N O M IC DEVELOPM ENT 61
Inequities due to Urban Growth
A fourth generalization suggests that gains accrued by way of
urbanization and economic development are also not equally
distributed across different segments of urban population. Access to
resources and incomes varies a great deal within urban centres. The
fast pace of urban growth and prosperity in the developing world is
accompanied by high levels of urban unemployment, persistence of
poverty, proliferation of slums and squatter settlements, and differential
access to basic services. According to one estimate, between one-
fourth and one-third of the urban population of developing countries
has been classified as urban poor and their numbers are still increasing
(NIUA 1990).
Indian urbanization, like that in other countries, is not without
its pitfalls. The economic gains of higher productivity, the process of
accumulation of surplus capital in land and housing, inadequate mass
transportation services, insufficient drinking water and sanitation are
manifestations not only of poverty of the population but also of the
urban governments.
High levels of unemployment, poverty and increasing concentration
of population in slums and squatter settlements are indicators of
inequalities existing in urban India. As per the National Sample Survey
data, the urban unemployment rates for males as well as females were
three time higher than the rural unemployment rates between 1972-73
and 1989-90 (NSSO 1992). A high level of unemployment is accompanied
by increasing marginalization and casualization of the urban work force,
resulting in a consistently expanding urban informal sector (Fathak 1993).
Although there has been some reduction in the incidence of urban poverty,
it is still substantial. According to official estimates, about 20 per cent of
the total urban population in 1987-88 was below poverty line, while
an expert group estimated the urban poverty to be at 40 per cent for
the same year (Planning Commission 1993). Furthermore, in the
year 1981, 23 per cent of India’s urban population was living in slums.
The proportion of slum population in million plus cities was about
36 per cent, w hich conforms to the general pattern of high
concentration of slum population in metropolitan cities in most
developing countries (NIUA 1988).
The urban malaise is largely a result of misallocation of resources
by the state, inability of the system of governance to capture a part of
62 THE C H A L L E N G E OF U RBA N G O V E R N A N C E
the 'economic surplus' generated in the cities, and improper allocation
of subsidies. As a result, the capacity of urban local governments to
improve infrastructural services, provide better levels of living for the
poor, and exercise of its larger role in improving the productivity of the
urban areas, is limited. As stated earlier, the new economic policies and
globalization of the Indian economy require a redefinition of the role of
the state and of the local government.
Public Policies and Urbanization
Despite the clear evidence of the strong relationship between
urbanization and economic development, macro policies in the
developing countries are often anti-urban, at least in rhetoric. Cities,
particularly large cities, were regarded as parasitical and their growth
implying massive concentrations of poverty, was viewed as a threat
to social betterment (Peterson et al. 1991). Restricting the growth of
large cities, reducing migration to cities, achieving a ‘balanced’ urban
pattern etc. have been the professed urban policy goals in the past.
Yet the cities have continued their growth unabated, despite these
policies. Market forces have thus shaped the pattern and level of
urbanization far more than public policies.
In India, public policies have caused distortions in the market and
led to misallocation of resources. The dispersal of industries to backward
regions through infrastructural investments and high subsidies to
enterprises, have had huge economic costs. These have been attractive
only to those large firms that can internalize all the agglomeration
economies available in the cities. Small firms continue to locate in and
near the major cities.
The other market distortion caused by public policy is with regard
to large subsidies available to urban residents and enterprises for
infrastructural services, housing and food. While these subsidies are
essential for a specific section of the urban population, its wrong
targeting, and across-the board’ nature of these subsidies, benefit
the unintended groups, leading to reduction in the cost of living of
high wage labour. Its repercussions on the urban labour market is
lowering of the supply price of labour. This increases the profitability
of modern enterprises. It forces the firms in the traditional/lower
circuits of the urban economy to subsist with low wage labour and
low technologies.
E C O N O M IC DEVELOPM EN T 63
If public policies are directed to target the subsidies to specific
groups, and to remove the market distortions, the higher productivity
of cities will be reflected more realistically in prices and wages. This
would lead to more efficient resource allocation over space, and to a
system of urban settlement that is truly reflective of economic
efficiency.
Ill ECONOMIC POLICIES AND GLOBALIZATION
A very short span of just five years has witnessed a world-wide trend
towards the withdrawal of the state from its traditional regulatory
role, and the adoption of market-based economic growth strategies.
This overwhelming response in favour of a ‘common world ideology’
has prompted some to even proclaim it as ‘an end of history’. The
underlying motive of such dramatic shifts in economic policies was
clear. The world economy was integrating at a rapid pace, and here
was an opportunity for a nation to benefit from the prosperity of
some and the poverty of others.
Macro-economic Policy in Ind ia
The Indian economic policy has been cast in a mould similar to that
prevalent in some other countries. From a very regulated policy
regime that sought to isolate the nation from the global economic
markets, the first wave of policy changes occurred in India after the
oil shock in 1973- With the changes in the political arena and with
the lessening of the oil crisis, the commitment to reform waned for a
while. It resurged, rather feebly, in the mid nineteen eighties. The
New Economic Policy (NEP) announced in 1991 is, however, more
radical, and is aimed at, (i) restoring macro-economic stability, (ii)
integration with the global economy, and (iii) increasing economic
efficiency. It includes policy measures such as encouraging greater
participation of the private sector, disinvestment in state-owned public
sector enterprises, deregulation of industries, liberalization of trade
and foreign investment and changes in the fiscal policy.
Like any economic policy, NEP also aims to bring about macro
economic stability, a faster pace of economic growth, higher level of
employment and income, and better standards of living. It is also
generally agreed that in the process of restructuring the economy,
the short-run consequences may be adverse for some sections of the
64 THE C H A LLE N G E OF URBAN G O V E RN A N C E
population and some enterprises.
The academic opinion on the ideology and content of the NEP is
divided. Some scholars view' the emphasis on economic growth and
"integration in the world economy as a step in the right direction. Some
have questioned the lack of consciousness regarding social dimension,
distributional questions and space for community initiative and action at
the local level (Patel 1992; Alagh 1994). According to the die-hard critics,
the economic policies have little hope of achieving the desired goals.
They argue that the NEP lacks a broader vision and development strategy;
the sequencing of reforms has been seriously flawed; the pace of reforms
has been rather rash and cavalier, it has been initiated without taking
cognisance of the absence of the required pre-conditions in Indian society;
and that appropriate and broad-based safety nets have not been put in
place (EPW Research Foundation 1994). Moreover, it is feared that the
current international situation characterized by global recession, political
conflicts and increasing protection of markets in the developed countries
will put additional strain on the performance of the Indian economy in
the nineties (Kumar 1992).
Global Economy and Foreign Investments in India
Integration with the global economy is one of the stated goals of the
NEP. Within a short span of three years, there already are some
positive signs of 'openness' on the part of the Indian state for hastening
the pace of economic reforms. The deregulations and financial reforms
have generated a keen interest among foreign investors. Although
the share of India in the global market is extremely small at present,
yet it is growing at a rapid pace.
In the growing world market, where the net cross-border flows
from investors have risen from US S^2 billion in 1956 to US S 159
billion in 1993. the share of the emerging markets of the Pacific Rim.
Latin America and Asian countries has grown from US $ 3 billion in
1986 to US S 52 billion in 1993- Among the Asian corporations, the
Indian companies have become aggressive players in the global
financial market place. During the period of May 1992 to April 1994,
of the 196 global equity offerings from Asia 30 were from Indian
corporate groups. O f the total of US S 18 billion raised in these
offerings from Asia, US S 3 billion were from Indian companies
(Business Today 1994).
E C O N O M IC DE VE LOPM EN T 65
The foreign direct investments (FDI) in India have also been
growing at a fairly rapid pace since the opening up of the economy.
During the first two years of its implementation, the total FDI in
India was US $ 3,525 million. The number of registered foreign
investment institutions in India went up from 22 in March 1993 to
158 in March 1994. These firms had a net investment of US $ 1494
million during the fiscal year 1993-94 (ILFS 1994).
India is thus clearly on the path to globalization. The system of
governance at the macro-level appears to be performing its tasks
appropriately. Yet there are persistent doubts about the macro and micro
systems of governance, particularly in the ability of the urban local
governments to cope with the infusion of foreign investments and, more
importantly, about their ability to create an environment conducive to
making the Indian cities capable of competing with other global cities.
In this context it is important to note that the macro-economic policy
in India, with its focus on trade and tariff measures, financial reforms and
industrial sector reforms, have completely disregarded the urban
dimensions. As stated earlier, economic growth essentially emanates
from the cities. But the policy regime of urban governance in India has
largely remained insensitive to the forces of globalization. In the
emerging scenario of impacts, cities will need to be governed quite
differently. A plausible scenario of the effect of the new economic
policies and globalization on the urban sector in India is presented
in the following paragraphs.
IV URBAN IMPACTS OP MACRO-ECONOMIC POLICY AND GLOBALIZATION
It is perhaps too early to assess the impact of NEP on the urban sector in
India. We can only visualize its likely pattern. This is based, both on the
expected consequences of certain macro-economic policy measures and
also on the experiences of other countries where similar economic policies
have been adopted.
The new industrial and trade liberalization policies are expected
to accelerate the pace of industrial and economic growth in general.
This will also mean a higher rate of urban population growth in the
nineties, as against the slowing down of the tempo of urban growth
in the eighties.
The spatial pattern of urban growth will exhibit some ‘dispersal of
concentration’, but larger cities with better infrastructure will attract
most of the investment, causing more urban spatial imbalance in the
66 THE C H A L L E N G E OF U RBAN G O V E R N A N C E
short term. States will compete with each other to attract both domestic
and foreign investment and will become selective in providing the
necessary infrastructure at the best locations. This will induce further
concentration of economic activities and population, in addition to the
urban concentration that is likely to be brought about by the more
efficient functioning of market forces, generally associated with
deregulation and liberalization of the economy.
Further, it is expected that the export-led growth policy will lead to
locational shifts of production or strengthening of the current trends in
favour of large cities. Integration with the international markets will
certainly influence the industrial structure of these cities, and cities will
also be expected to offer a wider range of services. It is well known that
official overseas development assistance, involving large-scale transfer
of funds is largely non-spatial. But foreign direct investments, particularly
that of multinational companies have distinct locational preference in
and around metropolitan and a few better placed large cities (Sit 1993).
On the one hand, cities will be expected to play a more productive
role and contribute to the national economic growth with limited transfer
of resources from the higher levels of governments. At the same time,
the deficit reductions at the state and national level will force these cities
to bear the bulk of the burden of national growth through local innovations
and initiatives (Peterson et al. 1991; Cohen 1990). Emphasis on better
management of cities, redefining the role of local government in
development, and greater participation of the private sector in performing
various urban functions are some initiatives adopted by global cities
undergoing the process of economic adjustment (Cohen 1990). Like the
States, cities will also begin to compete with each other by increasing
their attractiveness for industrial and business investment (Rodell 1993).
It is not possible to speculate about the potential global cities in
India for lack of comparative data across the cities. As a proxy for the
structural shift in city economies, the sectoral shifts of workers in the 23
million plus cities of India over the last two decades were examined.
Prima facie, there does not appear to be any systematic pattern in these
shifts. The shift in manufacturing employment over the past two decades
and the categorization of cities according to the shift observed are given
in Table 1. For nearly h a lf o f these m e tropo lita n cities,
manufacturing employment had increased during 1971-81, and
decreased during 1981-91. These cities are listed in C l and C2
according to the proportion of workers in the manufacturing sector.
E C O N O M IC DEVELOPM EN T 67
In three metropolitan cities, high manufacturing employment has
steadily declined whereas in two others, high manufacturing employment
has persisted.
TABLE 1. Shift in Manufacturing Employment between 1971 and 1991
City Workers in manufacturing employment years (%)
1971 1981 1991
A1 High and continuing high mfg. emp.
Surat 47.46 55.87 55.67
Ludhiana 43.59 n.a. 44.50
A2 High with decrease and increase in mfg emp.
Calcutta 37.26 29.12 34.45
B High but continuous decline in mfg. enip.
Bombay 40.96 38.91 35.68
Ahmedabad 44.66 43.87 35.68
Bhopal 26.17 24.46 18.42
Cl High with increase and decrease in mfg. emp.
Bangalore 33.30 34.68 32.65
Pune 31.118 32.96 30.66
Kanpur 30.20 32.54 27.89
Vadodara 34.14 36.21 31.93
Indore 34.30 32.90 26.48
Coimbatore 35.81 37.50 36.85
Madurai 29.48 31.62 27.03
C2 Middle with increase and decrease in mfg. emp.
Madras 27.83 28.37 25.90
Delhi 21.73 27.44 23.49
Hyderabad 20.09 23.18 22.33
Nagpur 22.42 21.70 20.83
Jaipur 19.59 26.58 22.20
Cochin 21.04 23.54 20.43
D Low mfg. emp.
Lucknow 16.28 15.13 13.41
Patna 10.77 15.64 6.63
Vishakhapatnam 15.70 20.34 19.29
Varanasi 13.18 19-09 16.31
SOURCE. Census o f India, 1971, 1981 and 1991.
68 THE C H A LLE N G E OF U RBA N G O V E R N A N C E
Indian cities, thus, seem to have their own internal dynamics
and do not appear to follow a general pattern of change in the city
economy. Generation of employment in cities is influenced by the
fortunes of the major industries in the city such as cotton textiles in
Bombay and Ahmedabad and jute textiles in Calcutta. The general
policy of ban on location of industries in metro cities in the eighties
adopted by the state governments has also contributed to the decline
in manufacturing employment in most metropolitan cities.
Looking at the current trends, it is difficult to forsee whether any
Indian city will acquire a global status or not, but it is most likely
that some will experience major structural shifts in the foreseeable
future. Manufacturing w ill continue to be a major sector of
employment, although at present its importance is waning. But with
a positive attitude towards cities, the industrial location policies of
state governments may be reversed and cities may re-emerge as
production centres, not only for the domestic economy, but also for
the global economy. The service sector, with a concentration of
highly skilled labour and enterprises, has distinct agglomeration
advantages in the city and is likely to grow further. How this sector
can be promoted in the cities and linked to the global economy,
depends to a large extent on local initiatives. Experiences of other
cities in the world in this respect will be discussed in the following
section.
V CITY ECONOMY AND GLOBALIZATION
The global economy has shaped cities for many centuries. The increasing
integration of the world economy has led to increasing similarities in the
processes of urban growth in many diverse countries (King 1990a). In
the past, colonization was the link between urbanism and the world
economy through extraction of surplus from the cities by colonial powers
(King 1990b). This has changed dramatically in the current process of
globalization of the world economy. The global cities of today serve as
command points in the organization of the world economy. Sassen
(1991) describes the role of New York, London and Tokyo as the command
points of the world economy and also the key locations for finance and
specialised service firms. These firms have replaced manufacturing as
the leading economic sector. Some global cities are also sites of production
in leading industries, especially production of innovations.
E C O N O M IC DEVELOPM EN T 69
New Production Process
The territorial dispersal of the economic activities of the trans-national
corporations has integrated the system of production. It is now not
uncommon to find production processes, that involve manufacturing
of components, in five different continents and its assembly in the
sixth continent. Such production processes demand locations that
are closely linked to the world market. While ports served these
functions in the colonial era, airports serve this function better in the
contemporary one. Air cargo ports, with rapid clearance facilities,
have become the norm in many countries.
In India, at present, very few cities qualify to perform this role.
The infrastructure is limited and not adequate to the present volume
of trade. Though the tariffs have been reduced, the procedural delays
for customs clearance still remain. Much of the present foreign direct
investment is oriented towards tapping the large domestic market,
but very little of this is geared for integration into the world system
of production. The infrastructural bottlenecks in the present
metropolitan cities are a major constraint. Inadequate power,
telecommunications, and transport facilities hinder the productivity
of the cities. Until these bottlenecks are removed the role of Indian
cities as centres of a global production process will be limited.
Emergence of Financial Industry and Innovation
Global cities serve as the market place for financial innovations. The
finance industry in the global economy has ‘moved away from its role as
a facilitator of production and distribution of goods ... the more it has
taken on a life of its own, a fact that can be seen most vividly in the
mushrooming of speculative activity’, (Maydoff and Sweezy 1987, as
quoted in Merrifield 1993). Finance is thus viewed as a ‘fictitious capital’
as opposed to ‘productive capital’.
The finance sector is an area where the Indian cities have a potential
role to play in the global market. As indicated earlier, nearly 160 foreign
investment institutions (FIIs) have been registered in India. Most of
them are located in Bombay. This sector requires access to the domestic
financial market as well as telecommunication links to the world market.
The major cities in India already have stock exchanges, around which
domestic firms, offering financial services, have mushroomed.
70 THE C H A LLE N G E OF U RBAN G O V E R N A N C E
How does the growth in the finance sector promote development of
the global city and the national economy? Circulation of finance among
the global conglomerates certainly increases the trade volumes on
speculative bourses. To what extent then does the surplus in these
speculative activities get invested within the city and national economy?
The boom in the stock market as a result of speculative activities has
provided opportunities to the domestic corporations to tap the capital
markets. Innovative financial instruments and debt market instruments
are being used by these corporations to make use of the booming capital
market. The government should create conditions for such instruments
to be used to finance 'developmental' activities, such as infrastructure
development at the local level. This will facilitate economic development
and improve service levels.
The recently initiated programme with USAID support on urban
infrastructure financing through the debt market in India is aimed at
utilizing the emerging financial industry in India for urban infrastructure
development. City governments, in partnership with private enterprises
and financial institutions, are expected to create debt instruments under
the programme to finance such projects. With the ease of flow of global
financial capital in India, access to capital for infrastructure development
is limitless as long as adequate rates of return are ensured. It is a challenge
for the system of urban governance to make these projects commercially
viable for attracting domestic and international capital. It is only through
such efforts that 'fictitious' capital can become productive capital.
Real Estate Market and Financial Industry
The immediate fallout of globalization trends and the global city
phenomenon is the rapid rise in real estate prices. Harvey (1982) and
Haila (1988), suggest that the surpluses of the financial industry get invested
in real estate; land and property are treated as pure financial assets by it.
The implications on the local land and housing markets in global cities
are seen in the phenomenal rise in rents and land prices. The small
numbers of foreign investment institutions in Bombay, relative to other
players in the real estate market, have caused a rapid boom in this
previously stagnant area.
The real estate market in a global city no longer remains linked to
the domestic economy, as land and property become 'tradeable goods’
like any other commodity. In the global cities of the world, major real
E C O N O M IC DEVELOPM ENT 71
estate projects like the Battery Park in New York and the Docklands in
London, are targeted to attract global investors. On a smaller scale, in
the business districts of emerging global cities of the Pacific Rim and
South-East Asian countries, many real estate projects aim to lure local
and foreign investors.
In India also, the real estate developers appear to have responded
to the globalization process. A major diamond trading centre,
comparable in scale and technology to the one in Antwerp, is being
constructed in Bombay. The Bombay Metropolitan Regional
Development Authority, a government agency responsible for planning
in Bombay, proposes to establish an international finance and business
centre in Bombay. A private corporation in Delhi proposes to establish
a world trade centre in Gurgaon, near Delhi. These are signs of the
efforts of the local governments and private sector enterprises in
India to respond to forces of globalized economy.
Public Policy and Globalization
The new economic reforms package being implemented in India has
ushered in some major changes in the system of governance at the
macro level. However, its impact on urban areas have not been
clearly understood. The emergence of global cities in India is
dependent on the performance of the economy and the extent to
which it gets integrated with the world market. While this has not
yet happened, there are clear signs that appropriate public policies
at national and local levels will have a significant effect on the role
of cities in the global market.
In the context of the uncertainty about the impact of the new
economic policy in India, it is of some interest to examine the role of
public policy in the economic restructuring of the newly industrialised
economies (NIEs) of East-Asia, the so-called East-Asian miracle (World
Bank 1993). It needs to be appreciated that reforms in these countries
coincided with the industrial restructuring in Europe, North America and
Japan and the consequent transfer of capital to the NIEs (Schoenberger
1988). The economic and political stability, a co-operative market,
investment in human capital and an efficient bureaucracy were common
features of successful East-Asian economies (Leipziger and Thomas 1994).
Douglas (1994) argues that the NIE states have enjoyed an
unusually high degree of autonomy, which is rare in other parts of the
72 THE C H A LLE N G E OF U RBAN G O V E R N A N C E
world. This has been made possible because of four factors: (a) absence
of powerful rural-based landed interests, unlike Latin America and South
Asia; (b) small and weak capitalist class in the initial period of industrial
expansion that was easily leveraged by state; (c) in its historical struggle
against communist totalitarianism, the state was able to make use of its
mission of capitalist development to impose an authoritarian rule; and
(d) the 'post-confucianism' seen as a code of ethics to guide behaviour
that is institutionalized in part by a centralized bureaucracy, which is
authoritarian in nature and is allowed to formulate policy goals
independently of particular groups.
The two principal characteristics of state interventions in NIEs were:
(a) development of institutional mechanisms that allowed us to establish
clear performance criteria for selective interventions, and monitor
performance; and (b) the costs of interventions, both explicit and implicit,
did not become excessive. As Page (1994) observes, the governments in
NIEs used a combination of fundamental and interventionist policies
to accumulate physical and human capital, allocate this capital to
highly productive investments, and acquire technology through foreign
participation to achieve rapid productivity. In doing this, the political
leadership adopted the principle of shared economic growth as a
major social goal and relied extensively on the private sector. The
deliberation councils in Japan. Korea, Malaysia and Singapore enabled
the private sector groups to in fluence the form ulation and
implementation of government policies.
Effective participation of bureaucracy in core economic ministries also
helped to accelerate the process. This is quite in contrast to the fear of
orthodox-paradox' expressed by some scholars in India. Jain (1994) denotes
the 'orthodox-paradox' as the attempt to use the agencies and personnel of
the state to diminish and dismantle their own power'. He argues that the
pace of reforms initiated in India is very slow because of this; they are yet
to percolate down to the state and local system of governance.
However, as Waterbury (1993) states, '(while) the institutional culture
of public property regime, combined with the constellation of coalitional
interests, dependent on that regime, mean that successful reform is
nearly impossible'. Yet when fundamental restructuring is entered
upon, none of the threatened interests appear capable of blocking
the restruc tu ring . 'The reasons for this stem from the ir
organizational weakness and their loss of legitimacy (if they ever had
one in the first place) among the growing portions of society that did
E C O N O M IC DEVELOPM ENT 73
not directly benefit from the social pacts, such as the rural population,
those in the informal sector and the middle-class consumers who have
become particularly sensitive to deteriorating quality of sendees and
products'.
The state can thus use the growing discontent and dissatisfaction,
among the masses about the system of government, .to usher changes in
the mode of governance. This does require strong commitment and will
on the part of the political leadership. The NIE experiences also suggests
that a 'strong state’ and an effective bureaucracy, that is open to the
acceptance of private enterprises, can indeed bring about structural
changes and promote broader societal goals.
Experiences of NIEs and other global cities suggest that success
is achieved, not by the total withdrawal of the state and allowing the
market to work on its own, but by strategic interventions of a strong
government which facilitates the market. For this to happen in India,
there is a need to search for a new mode of governance that promotes
g loba lization and urban econom ic developm ent. W hile the
preconditions prevailing in NIEs do not obtain in India, the positive
role of the state in promoting economic development can certainly
be emulated.
VI NEW MODE OF URBAN GOVERNANCE FOR ECONOMIC DEVELOPMENT
The growing literature on the role of cities in national economic
development has one common theme: the neglect of the city by the
macro-economic policy makers. As Cohen (1990) states, 'if one of the
objectives of adjustment is to increase productivity, it should be self-
evident that the productivity of the urban economy should be a priority
policy focus’. According to Kahnhert (1980), 'the city should be considered
as an arena whose markets need to function more efficiently, where the
prerequisites for economic activity such as infrastructure need to be
available, and where the productivity of the labour force should be
improved by human capital investment’.
The new mode of governance in the context of globalization is
beyond the traditional concerns of municipal management. It now
entails the promotion of the city as a ‘product’. This shift from
managerialism to entrepreneurialism, according to Harvey (1989), is
due to four basic reasons.
First, the competition within the international division of labour
provides an opportunity to create specific advantages for a city through
74 THE C H A LLE N G E OF U RBAN G O V E R N A N C E
public and private investment in physical and social infrastructure.
Such infrastructure would strengthen the economic base and is likely
to increase the attraction of a city.
Second, improving the competitive position of a city with respect
to the spatial division of consum ption requires that cultural,
entertainment, upmarket shopping district, etc., which have become
the mainstay of global travellers, should be vigorously promoted.
Global consumers are attracted to cities that are innovative, exciting,
creative and safe places in which they would like to live, visit, invest
and consume.
Third, in the global competition for the acquisition of key control
and command functions in high finance, government or information
technology, cities find these activities appealing as 'the golden path
to survival'. But the monopoly power of the global cities— London,
New York, Tokyo. Paris— is hard to break, and for other cities, trying
for this position, the competition in this realm is very expensive.
Finally, there is also competition for a share of the redistribution
of surplus. As the liberal economic policies are set in motion, there
is a withdrawal of the state from the social sector. Assistance to the
urban area, however little to begin with, also dwindles. That section
of city population which does not derive any benefit from the surpluses
of the global economy, and is often deprived of its normal work
opportunity, would strive for its share. The enterprising system of
governance will need to recognize this and incorporate it in its
economic strategy.
Decentralization as a Mode of Governance
The democratic decentralization, envisaged through the recent
Constitution (Seventy-Fourth) Amendment Act on municipalities in
India, stipulates planning for economic development as one of the
major functions of a municipal government. The national system of
governance has thus provided a mandate to the local government for
its economic development. But the severe infrastructure deficiencies,
the highly regulated and controlled land and property markets, the
limited financial resources of the local governments, and the
inadequate managerial, institutional, and technical capacities of the
local governments, are major constraints that limit their ability to
adequately handle economic development.
E C O N O M IC DEVELOPM ENT 75
From among the range of functions listed in the Twelfth Schedule
of the Act, the municipal governments in India, at present, have been
carrying out very few functions. In many states even the ‘basic
municipal functions’ of provision of water, sanitation, primary health
care, primary education, etc. have been gradually withdrawn from
the municipalities. The numerous para-statal agencies, established
to provide the basic municipal services, have also not been able to
adequately perform their tasks.
It is of some interest to note the Brazilian experience of
decentralization in the context of current Indian efforts. In 1979, under
constitutional amendment, the Brazilian government created multi
municipal authorities for major cities. The municipalities regarded this
as an encroachment on their domain. These metro agencies did not
receive co-operation from the local government and were abrogated in
1988 under the decentralization efforts. The Greater London Council
and the Metropolitan Manila Commission were also abolished by their
national governments, albeit for a very different set of reasons. But the
abolition of the ‘super-agencies’ in all these cases, have led to greater
responsibilities for the local governments.
Will the seventy-fourth Constitutional Amendment Act bring about
similar actions on the part of the state governments, which have created
such organizations in India ? Although, it is too early to suggest that
similar institutional restructuring will also take place in India, a preliminary
review of some of the states' efforts suggests that the institutional structure
is unlikely to alter.
Thus, while the seventy-fourth Constitutional Amendment Act holds
a great promise for restructuring the system of urban governance in
India, in the context of urban economic development, very little has
been achieved. The statutory basis of the role of cities in promoting
economic development remains unaltered, except for the fact that it is a
mandated function under the constitution. It is hoped, however, that in
the process of learning by doing’ the city governments will discover the
new modes. Unless the city government asserts itself to perform its
mandated functions, the new mode will remain an illusion.
System of Governance and Economic Development in Cities
Under the present mode, no particular agency or institution within the
government, has an explicit mandate for the economic aspects of city
growth. In fact, at least in rhetoric, the policy regime appears to be
76 THE C H A LLE N G E OF U RBAN G O V E R N A N C E
against economic growth in cities.
Industrial Development
The industrial policy of 1991 brought a radical change in deregulating
most of the national-level regulations pertaining to the establishment of
new industries. But, it persisted with an anti-urban bias in disallowing
major industries within 25 kilometres of metropolitan areas. Although,
through caveats, it provides an opportunity to the State and city
governments to permit industries in cities requiring rejuvenation or
designated industrial areas, the local policies against industrial expansion
in cities have persisted.
The state governm ents continue to prom ote industria l
development in 'backward' areas of the state away from the major
cities. The financial assistance and subsidies to industries, though
withdrawn at the national level, still continue at the state level. The
state-level industrial infrastructural institutions are also asked not to
develop infrastructure around the major cities.
There are. however, signs that under the liberal policy environment,
the state governments have become more aggressive in competing
with each other to attract foreign direct investments and domestic
industrial investments. These efforts include quick processing of
applications granting concessions and providing requisite incentives.
From the industrial entrepreneur memoranda OEM) with the Ministry
of Industries, it appears that the states of Maharashtra, Gujarat and
Haryana, with comparative advantages of a diverse economic base,
have been able to attract nearly half of the total national industrial
investments. Although disaggregated analysis on locations of these
industries is not available, preliminary results suggest that the new
industries are being located in or around the larger cities.
The urban local governments are at present not involved in the
process of industrial growth, as the regulatory functions of registration
of industrial establishments under the various existing statutory and
procedural requirements are with the state governments. Much of
the industrial growth within and around the city is, thus, outside the
formal' system of governance. Though considered informal,
unregulated and small-scale, these enterprises have been growing
rapidly, often in contravention of the master plan of the city. For
example, the city of Delhi has over 1,00,000 small industrial
establishments, whereas its master plan for 2001 does not provide for
E C O N O M IC DEVELOPM EN T 77
any industrial development. The situation in other cities is not very
different. Thus, instead of promoting industrial growth in a systematic
and rational manner, the city governments are forced to adopt flexible
policies toward this growing sector.
With globalization, the present role of city governments in the
sphere of economic development needs to be changed. City
governments will need to aggressively market the city as a location
for production-related activities and services. This may involve
revision of its policies for location of industries within and around
the city, of providing adequate infrastructure and ensuring that the
surplus generated in these activities is invested for overall development
in the city. The local governments will also have to develop plans
and procedures that promote economic development in cities through
the creation of sites for industries.
Business Enterprises
Commercial establishments are subjected to fewer regulations by urban
local governments. Besides the designated business districts, commercial
establishments are also permitted to be established in predominantly
residential areas. The registration under the Shops and Establishment
legislation is also fairly simple. Thus, commercial enterprises, unlike
industries, do not face any major constraints. Though the city governments
do not actually promote them, they at least seem to welcome them.
Land and Property Development
The statutory basis of urban governments in shaping economic growth
is embedded in its role in land and property development. Though
in most cities, the preparation of plans for the city has been usurped
by the metropolitan-level urban developm ent authority, city
governments continue to exercise some control over such activities.
Urban development plans in India essentially are land-use
ones with prescribed development controls, based on notions of
public safety and health, order and efficiency in urban services
and prom oting orderly growth of cities that is aesthetically
pleasing. These plans are quite static, in the sense that they are
designed for a target year w ith little scope for mid-course
correction. The economic structure of the city is assumed to be
given, and no plan is made to promote economic development,
78 THE C H A L L E N G E OF U RBA N G O V E R N A N C E
or to finance the proposed infrastructure. The local government is
thus thought to be essentially concerned with regulating the building
activity in the city.
Land and property development in cities are regulated not only
by the zonal plans, but also by other state-level regulations. Mehta
and Mehta (1990) describe the long delays in getting the requisite
permissions for transfer of lands, registration of sales, conversion of
agricultural land to urban uses, approval of layouts and sub-division,
approval of bu ild ing plans and bu ild ing permissions to start
development of a property. These procedures take between three
months to three years. The costs of these delays are substantial and
are eventually passed on to the buyers of property. The resultant
impact of such high cost delay on the land market is adverse. The
supply is artificially restricted and the high transaction costs increase
the market prices.
Improving the efficiency of the land and housing market is
extremely crucial to the productivity of cities. The urban local
government has been, and will continue to exercise an important
role in the real estate sector. The national and state governments
will need to modify their current practices, simplify procedures and
facilitate the building industry.
Mehta (1993) lists a set of reforms necessary for increasing the
efficiency of land markets, increasing participation of the private sector,
promoting equity and access of land to the poor, financing land
development, and strengthening the role of the local government.
The suggested action at the national level includes removal of the
Urban Land Ceiling legislation, discouraging bulk land acquisition by
public authorities, providing fiscal incentives for the private sector to
undertake low-income housing, and developing institutional structures
for financing land and infrastructure projects through capital and debt
markets. The state government will also need to reform its land
revenue codes to make land transfers and registration simpler, improve
its land and property registration systems, introduce tax on vacant
urban land to curb speculation, promote public-private partnerships
for land development, grant autonomy to local governments to develop
rational land-based taxes and recover costs of development through
land-related charges.
The agenda for reforms in the land and property area is indeed
large. The local governments will also need to develop capacity to
move away from static land-use based plans and develop strategic
E C O N O M IC DEVELOPM ENT 79
approaches that shift away from regulations and controls on urban
development, to promoting and managing growth in cities.
Towards a New Mode o f Governance
Liberal macro-economic policies and decentralization of municipalities
through the Constitution (seventy-fourth) Amendment Act, have
opened up opportunities for the city government to be a major
promoter of economic development within its jurisdiction. But as
argued earlier, governance is not only what the governments do, but
is a collaborative effort of all the stakeholders in the city’s future.
Among the stakeholders, the governments at national, state and local
levels will have an important role to play, but so will the industrial
and business enterprises as well as the residents themselves.
Urban economic development is not the responsibility of the
municipal government alone. As it is, the performance of the
m unicipal government is influenced by the central and state
government’s regulations and financial controls. Poor urban services
may be attributed to an inefficient municipal administration. But
instead of increasing the supply of these services, it may be more
important to improve the efficiency of their delivery. Such efficiency
will come about when both the private sector and the community are
involved.
Role of the National Government
Urban development issues have generally been relegated to the state
governments in India. Yet the national government, in the past, has
often had a far reaching influence on urban development. The often
cited example is that of the Urban Land Ceiling legislation of the
national government that has adversely affected the urban land and
property markets. Poor budgetary support for urban infrastructure
developm ent and inadequate financial institutions for urban
development are some other lacunae in the national urban policy.
The enabling and facilitative role of the national government in
urban development will be served only when it accepts certain basic
premises as a part of its macro-economic policies. These premises
include: (a) increasing the efficiency of urban markets through enabling
regulations and procedures; (b) increasing participation of private, co
operative and household sectors in provision, delivery and maintenance
80 THE C H A L L E N G E OF U RBAN G O V E RN A N C E
of urban infrastructure and services; (c) strengthening the capacity of
local governments; and (d) establishing or promoting institutional
finance mechanisms for urban development.
It is important to recognize that in most countries the cities receive
substantially more support from the national government than in India.
For example, in Britain the Inner Urban Areas Act of 1978 provided a
range of powers to local authorities to grant assistance to industries
and carry out industrial area improvement in cities with severe
economic problems. The local enterprise boards established in these
cities as a separate institution within the city government had a specific
mandate to play a promotive and pro-active role in economic
regeneration (Hausner 1987). More recently, ‘City Challenge', a
programme funded by the national government, has been introduced
in Britain. Under this programme, local authorities in partnership
with local business and community bid for funds to assist regeneration
of their urban area (Booth 1994). Similar programmes exist in other
European and North American countries, in which the national
governments provide funds for infrastructure, and exempt debt
instruments such as municipal bonds from taxation.
The China Open Cities Project is another model worth emulating
in India for the mega-cities, as also the Integrated Development of
Small and Medium Towns (IDSMT) programme. Under the open
cities project, cities that have the potential for foreign investments
are identified, and are helped to plan and develop the managerial
and administrative skills needed to link the cities to the global economy
and thus contribute to China's national development.
In this context it may be suggested that the recent mega
cities programme, initiated in five major cities by the central
government, needs to be recast from its original objective of being
only an infrastructural development programme. It is necessary
to view these five cities as potential global cities and provide the
necessary assistance by structuring these programmes after the
City Challenge programme of Britain. In this manner, instead of
mere transfer of funds from the central government to the local
government for infrastructure development, the city governments
in India could be coaxed to establish partnerships with business
and the community.
E C O N O M IC DE VE LOPM EN T 81
Urban Local Governance
With the supportive and enabling national and sub-national policies
for urban economic development, the major responsibilities of
improving the urban productivity and making the city compete in the
global market, will be that of the local system of governance. In
India, the urban governments and various state-level agencies
responsible for provision of urban services, appear incapable of
performing these tasks owing to severe limitations of managerial,
technical and financial capacities. While strengthening the local
governments to perform these tasks would be on top of any agenda
for local action, evolving a system of governance that incorporates
all the stakeholders would be equally important.
Cities are the centres of the emergent global society. Increasingly,
economic development is being driven more by globalization than
nationalization. National responses to global opportunities are clearly
spelt out in the macro-economic policies of trade and tariff reforms,
deregulations and privatization, making the society more open and
reducing the role of national governments. The activities related to
the creation of global linkages such as identifying opportunities,
financing, handling transnational flows, structuring and servicing
global markets are primarily located in cities (Knight 1989).
The approach to city development thus needs to be based on
positioning the city, not in the national market context, but in the
context of the global market. While the federal political structure in
India has led to erosion of the powers of city governments, the cities
have themselves become an arena for the national party-based policies,
rather than serving their own constituencies. The role of the city in
the global society will thus have to be understood from within.
City building will become increasingly competitive as more cities
take up the challenge of the global vision and develop local
programmes. In doing so the city will not only have to create
conditions for linkage with the global economy, but will also need to
improve the quality of life that it offers to its residents. Unless the
residents perceive the quality of life in their city as better than offered
elsewhere, the city will not be able to create an interest in the global
vision. As Knight (1989) suggests, ‘the power of the city will thus
depend less on powers from above and more on powers from within,
that is, on the effectiveness of the civic process’.
82 THE C H A LLE N G E OF URBAN G O V E RN A N C E
Partnership among Stakeholders
The crisis of managing cities in the face of the rapid rise in demand
for urban services is likely to worsen if the onus remains only on the
local government. The urban local government today is alienated
from the civic society. The residents do not identify with it as it is
perceived to be unresponsive and apathetic to civic problems. The
citizenry and business enterprises have lost faith in the system because
of its corrupt practices and hostile attitudes. The local government is
also seen as pursuing only its self-interest rather than larger societal
interests. The urban local government, thus, in addition to the crisis
of institutional capacities, also suffers from a crisis of identity.
The vision of thinking globally must emanate from the collective
will of all the stakeholders in the city— the municipal government,
the industrial and business establishments and the community. If it
is portrayed as only the vision of the municipal government, it is
unlikely to receive the requisite local support.
The new mode of governance is that of partnership among all
the players in the city. Such a partnership has to be built on the
strengths of each stakeholder— the efficiency of use of capital by the
private sector, the concern for effectiveness in delivery of services of
the community sector and the macro perspective of the government.
Such partnerships have become the mainstay of local economic
development programmes in cities around the world. Many of these
efforts were initiated to rejuvenate the declining central city economy.
Are such ventures possible in India? Can the stakeholders come
together to form such partnerships?
Mehta (1992) cites the example of ALERT (Ahmedabad Local
Economy Rejuvenation Trust), established by the textile labour union,
the textile mill owners, the citizens and academic institutions. ALERT
proposes to utilize the land of 15 textile mills that have been closed
for the past eight years affecting nearly 20,000 workers. The usual
process of liquidation of the assets of these mills has been initiated
and is expected to take a decade more before the workers get their
dues. ALERT proposes to use the land worth Rs 1000 million, to
develop industrial, commercial and residential complexes. The project
envisages the transfer of land development rights to the trust with an
initial seed capital for the trust to start the project. The state and the
national governments have, as yet, not agreed to amend the current
regulations and procedures to facilitate this process.
E C O N O M IC DEVELOPM ENT 83
In Bombay, the Bombay Forum set up under the aegis of the
Bombay Chamber of Commerce, has prepared a perspective of the
city's role in the globalizing economy. Though initiated by the private
sector, the Forum interacts with the local and State government to
convince them about the potential role of Bombay as a global city.
VII CONCLUSION
The concept of governance implies more than just what the
governments do. A system of governance is 'good' when all the
stakeholders— the government, the bureaucracy, the business
enterprises and the civil society— cohesively collaborate to achieve
certain economic and social goals. In the context of the economic
policies enunciated in India, which aim at the global market, the
role of a system of urban governance that promotes economic
development in cities is crucial.
The new industrial and trade liberalization policies are likely to
accelerate the pace of economic growth and consequently the pace
of urbanization. Cities with better infrastructure are likely to attract
most of the new investments. Competition in the global market may
lead to restructuring of the existing economic base, and increase in
unemployment in the short run. In the absence of a concerted
response at the city level, the adverse impact of the liberal economic
policy may predominate.
At present, the central and state governments in India are not
responsible for promoting economic development in cities. On the
contrary, they have adopted restrictive policies aimed at curbing the
growth of cities. In addition, the weak financial base and limited
managerial capacity of urban local bodies have prevented them from
actively participating in economic development. The challenge to
face the forces of globalization of the Indian economy is immense,
and requires a new mode of urban governance.
The new mode of urban governance visualized is that of
partnership of all stakeholders for economic development in cities.
This envisages a facilitative and promotive government. Its premises
include, (i) increasing the efficiency of urban markets through enabling
regulations and procedures, (ii) increasing the participation of private
and community sector in the tasks of the city government related to
urban services and infrastructure, (iii) strengthening the capacity of
the local government to adjust itself to its restructured role, and (iv)
establishing or promoting institutional structures and financial
84 THE C H A LLE N G E OF U RBAN G O V E RN A N C E
mechanisms for urban development.
Urban governments will have to take a lead in convincing the
national and state governments about the important role that cities
have to play in the national and state economic development.
They should promote partnerships with the private sector and
involve the general public in the broader vision. Unless such a
collective effort is made and a new mode of urban governance
emerges, the positive role of Indian cities in the global economy
will remain a mirage. Such an effort is also essential for mitigating
the adverse effects of the ongoing macro-economic adjustment of
the new economic order.